The Restaurant Business - Metrics 101

What are the key metrics of the restaurant business? There are really 3 components - the Food Cost, the Overhead Costs and the Gross Profits.

The Food Cost: This is essentially the direct cost of the product you will be selling. One of the reasons the food business has historically been very profitable is that customers are willing to pay 3 to 4 times the cost of the product. So for a good restaurant business, you should target your food cost to be between 25% to 33% of the selling price.

The Overhead Costs: This includes all non-food costs: the major ones being Rental of the premises, Staff salaries, Utilities (Gas, Electricity), Marketing expenses. For a good business, the target for the overhead costs would be around 33%.

The Gross Profits: Total Revenues - Food Costs - Overhead Costs = Gross Profits. So the target for a really good business needs to be 33% of the Revenues.

Well, this sounds cool - Right. In the next few posts, we will explore each of these components in detail and understand the challenges/issues you may face.